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Rate Lock Worth the Cost?

Home Mortgages and Home Buying Rate Lock Worth the Cost?

  • Avatar shantster 
    Participant
    Status: Physician
    Posts: 101
    Joined: 01/16/2016

    We’re in the process of shopping for mortgages for our new home that should *hopefully* be ready in September. This date has moved back a bit due to construction delays so I have no idea if that will be officially accurate. Right now we are getting offers for a free 120 day rate lock from the builder’s “preferred lender” that is 0.25% higher than another bank that guarantees the rate only for 30 days. They would match the 120 day rate lock for 0.125% extra on the interest rate so only 0.125% difference. Going with the builder’s preferred lender would also give us $4k back in closing costs, which would wash out the rate difference.

    I am planning to use the different rates to get the banks to compete against each other, but in general: Are rate locks worth it?

    #227583 Reply
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 542
    Joined: 06/18/2018

    Not in this market. Let it float.

    #227617 Reply
    Liked by jhwkr542
    Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1210
    Joined: 02/15/2016

    Yep, rates aren’t expected to go up in this short tune frame. Why only 2 banks? Or have you just narrowed it down to those 2?

    #227667 Reply
    ACN ACN 
    Moderator
    Status: Physician
    Posts: 598
    Joined: 01/08/2016
    Splash Refinancing Bonus

    Some banks allow you to float your rate of you lock it..if so, lock it and if it’s lower at closing you get that rate.

    If you're ever having a bad day, just remember in 1976 Ronald Wayne sold his 10% stake in Apple for $2,300.

    #227672 Reply
    Avatar BCBiker 
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    Status: Physician
    Posts: 225
    Joined: 01/10/2016

    This calculator allows you to shop to see fair market differences for different mods to loan. I could not find a better one than through this link.  If you live in one of the states this company is licensed you will find their rates are the best on market. If not I would use the tool anyway and benchmark rates against quotes in your market. They were 0.75% lower than Rocket Mortgage and other lenders when I refinanced last year. I would bet you can find a similar company in your market, if you ignore the top 20 results that come up in Google.

    https://www.catlincapital.com/pricing/

    Rates are “expected” to trend downward so you will probably be paying to pay a higher interest rate if you do the lock.

    #227715 Reply
    Avatar shantster 
    Participant
    Status: Physician
    Posts: 101
    Joined: 01/16/2016

    Yep, rates aren’t expected to go up in this short tune frame. Why only 2 banks? Or have you just narrowed it down to those 2?

    Click to expand…

    We have inquired with multiple banks, and those are the best 2 right now. I had one give us the same rate as the higher one with no benefit on closing costs and the rest were at least 0.25% greater than the higher one, also with no money on the closing costs. Those have been moved to the “bad rate” column of my spreadsheet.

    That’s my other thought on the current state of market (not going up) though I don’t want to time it. I think it’s my discomfort with things that are not a fixed price regardless of when you buy.

    #227813 Reply
    Liked by jhwkr542
    Avatar shantster 
    Participant
    Status: Physician
    Posts: 101
    Joined: 01/16/2016

    Some banks allow you to float your rate of you lock it..if so, lock it and if it’s lower at closing you get that rate.

    Click to expand…

    We haven’t gotten to the discussion of floating down. I don’t think that’s an option for at least the one associated with the builder. They also are very much in the business for doing the best for them and not us so I really don’t trust them. For example, a year ago she was trying to push us in to a 1 year rate lock, which would be high cost for us. Since then, the rates went down, and we still aren’t in our place due to issues with the builder but we would not have gotten the money back. When I talked with her the other day she kept talking about how “excited” she was for us that we didn’t do the rate lock with the decreased rates, and I didn’t have the time or energy to start arguing with her about how she was pushing us for the rate lock. I think that nearly all people buying in our community are staying with the preferred lender rather than shopping around so the option of floating it down has not been offered despite me being clear that I’m shopping around. She did give us a “free” 120 day rate lock from their typical 60 day due to shopping around.

    #227816 Reply
    Avatar shantster 
    Participant
    Status: Physician
    Posts: 101
    Joined: 01/16/2016

    This calculator allows you to shop to see fair market differences for different mods to loan. I could not find a better one than through this link.  If you live in one of the states this company is licensed you will find their rates are the best on market. If not I would use the tool anyway and benchmark rates against quotes in your market. They were 0.75% lower than Rocket Mortgage and other lenders when I refinanced last year. I would bet you can find a similar company in your market, if you ignore the top 20 results that come up in Google.

    https://www.catlincapital.com/pricing/

    Rates are “expected” to trend downward so you will probably be paying to pay a higher interest rate if you do the lock.

    Click to expand…

    For some reason I’m not getting into that site – it might be an issue on their end as it is slow and crashing. I’ll keep trying though.

    Rocket Mortgage was terrible with rates – definitely the highest we’ve seen. We had looked at them since our employer has a “perks” for closing cost incentives, but the rate was so bad that it wouldn’t make a difference, particularly as we already had better closing cost incentives in addition to lower rate with the other company.

    I understand the thought that rates are “expected” to go downward (I’m more anticipating stable rates) though that’s akin to market timing, which makes me nervous.

    #227817 Reply
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 542
    Joined: 06/18/2018

    “I understand the thought that rates are “expected” to go downward (I’m more anticipating stable rates) though that’s akin to market timing, which makes me nervous.”

    Cool. Then lock now, the higher rate will cost you a few grand over the life of your loan. Locking a rate now is actually the ‘market timing’ move, letting it float isn’t.

    #227852 Reply
    Avatar Infinity 
    Participant
    Status: Physician
    Posts: 53
    Joined: 05/25/2019

    You are asking the question that no one knows the answer.  Rate lock will be worth it if the future rate raises more than the cost (0.125%-0.25% in your situation). If we can predict that the rate will go up or down in the future, we would be billionaires and don’t have to be bothered with this blog.  I agree with the previous posts that Fed will reduce rate at the next meeting and housing sector is not very hot now, so the future rates will probably be the same or lower in the near future. Personally, I would not lock the rate now if i have to pay extra fee.  That is my guess.  However, 0.125% is insignificant when comparing to other factors of buying a home.

    #228109 Reply
    Liked by jhwkr542

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